Is the Reliance share price in the buy zone?

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price may be at bargain levels.

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The Reliance Worldwide Corporation Ltd (ASX: RWC) share price is trading at a discount to the ASX 200 Industrials (excluding financials) for the first time since listing.

Strong growth and earnings

Plumbing supplies company Reliance Worldwide is the worlds largest manufacturer of push to connect (PTC) plumbing fittings and water control valves. The company’s flagship product ‘SharkBite’ has been embraced by plumbers who prefer the PTC technology over soldering traditional brass fittings. With a 10% penetration of the US market, reliance holds over 80% of the PTC market share with products stocked in US hardware mega-chains Home Depot and Lowes.

Reliance reported half-year earnings in February with highlights including, a 58% increase in net profit after tax of $65.7 million and a 50% increase in sales to $544 million. In addition, the company reaffirmed full-year EBITDA and lifted its interim dividend to 4 cents from 3.5 cents a year ago.

Brexit and commodity fears

Despite a rally at the start of the year, the Reliance share price has pulled back and remains relatively flat for 2019. Last year Reliance increased its exposure to the British economy through a $1.2 billion acquisition of John Guest Holdings. The acquisition and uncertainty over Brexit and its ramifications on the British economy, has forced Reliance to increase stock levels of raw materials imported from the European Union.

The price of copper, zinc and stainless steel also hampered the Reliance share price and earnings. The SharkBite fittings which are largely made from copper saw reduced margins as the rising costs of raw materials bolted last year. In addition, operations in the Asia-Pacific region were stagnant due to the decline in new housing activity in Australia.

Broker note

Goldman Sachs released a note last week with a retained buy rating on Reliance and a price target of $5.50. The broker cited the increasing repair and maintenance activity and positive results of industry peers as positives for Reliance.

Foolish Takeaway

In my opinion, the Reliance share price is a long term buy. The company has a good board and stable earnings and growth profile. Reliance holds much of the PTC market share in the USA giving the company strong value and growth potential as it looks to further infiltrate the market. In addition, despite the rising commodity prices in copper, Reliance was still able to perform strongly.

I also think that Reliance is a great example of how Australian made technology can be built into a strong global business. Other long-term growth shares to consider are these ASX top stocks.

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Motley Fool contributor Nikhil Gangaram owns shares of Reliance Worldwide Corporation. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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